Tag: external costs

March 2007 has seen a lot of activity in government circles relating to the environment and environmental legislation. The EU has agreed a renewable energy target for all members while the UK government has released its own climate change bill. The Carbon Trust has then released a one-year pilot of a carbon labelling scheme, with Walkers Crisps being the first brand to bear the carbon labels. The aim is to increase consumers’ awareness of the carbon footprint of the goods they are buying. The articles linked below look at all these issues.

EU agrees renewable energy target BBC News Online (9/3/07)
EU seeks converts to eco-stoicism BBC News Online (9/3/07)
Navarra embraces green energy BBC News Online (9/3/07)
How Europe can save the world Guardian (11/3/07)
Carbon labelling scheme launched BBC News Online (15/3/07)
Labels reveal goods’ carbon cost BBC News Online (16/3/07)
New law in the climate jungle BBC News Online (13/3/07)

Questions

1. Explain the difference between private costs and external costs. Identify five external costs that arise from the generation of electricity by conventional means.
2. Using diagrams as appropriate, show the impact on the market for energy of increased use of energy generated from renewable sources.
3. Evaluate the likely effectiveness of the carbon labelling scheme introduced by the Carbon Trust.

The issue of road pricing has been simmering in the background of the environmental debate for many years and has, this month, gained greater prominence with the publication of a draft version of the Road Transport Bill that will allow local authorities to run pay-as-you-drive trials in their local areas. A number of local authorities will be interested, though all will be wary of the policy given the recent petition on the Downing Street website against road pricing that got nearly two million signatures! London Mayor, Ken Livingstone, has meanwhile extended the reach of the London congestion charge with his plans to create a low emission zone (LEZ) in the capital and charge more for older, and therefore dirtier, vehicles to enter the zone.

Draft bill starts Britain down the road to pay as you drive Guardian (21/5/06)
Livingstone to charge older, dirtier lorries £200 per day Guardian (8/5/06)


Questions
1. What are the external costs and benefits resulting from increased use of the roads?
2. Discuss the extent to which the policy of charging more for older, dirtier vehicles is likely to reduce the external costs of driving.
3. Using diagrams as appropriate, show the likely impact of pay-as-you-drive schemes on the social equilibrium in the transport market.